By Kevin McCoy

Pharmaceutical giant Merck (MRK) will pay $4.85 billion to settle most of the nearly 27,000 pending Vioxx lawsuits nationwide in one of the largest civil agreements ever, the company announced Friday.

If certain conditions are met, the company said it would pay the settlement amount into a fund to pay the claims of qualifying victims, with the first payments to start as soon as August 2008.

The deal, if finalized, could largely quell legal and financial uncertainty that began swirling around Merck in 2004, when the company pulled Vioxx off the market in response to a scientific test that showed the painkiller doubled the risk of heart attack or stroke in some circumstances.

“This is a good and responsible agreement that will allow the company to concentrate even more fully on its mission of discovering, developing and delivering novel medicines and vaccines,” Merck CEO Richard Clark said in a conference call with Wall Street analysts and media reporters.

Investors appeared to agree, sending Merck shares up nearly 5% on a down day for stocks.

Under the deal, Merck would set up two funds for Vioxx lawsuit plaintiffs who suffered either a heart attack or stroke. The first, for $4 billion, would cover those why suffered myocardial infarctions, or heart attacks. The second, for $850 million, would cover those who suffered ischemic strokes.

The deal, which attorneys said was signed before dawn Friday in New Orleans, requires that law firms coordinating much of the Vioxx litigation recommend participation to all clients who suffered a heart attack or stroke. The agreement would become final only if 85% of the plaintiffs drop their lawsuits and participate.

“I don’t think anybody is going to opt out, because it’s a very fair deal for both sides,” says Jere Beasley, one of the lawyers who negotiated the deal during roughly 50 bargaining sessions over the last two months.

“Most important from our perspective, the victims will be compensated for their injuries,” says Beasley. “And from Merck’s perspective, this ends the litigation, which should make their shareholders happy.”

The agreement is not a class-action settlement that covers all plaintiffs. Instead, each claim will be evaluated individually.

Alleged Vioxx victims must meet a series of tests. First, they must have medical proof of having suffered a heart attack or a stroke. They must also show they received at least 30 Vioxx pills. Finally, they must have evidence that they received sufficient pills to have ingested the painkiller medication within 14 days before suffering the heart attack or stroke.

The deal was reached after Merck pursued a $1.9 billion legal strategy of trying each Vioxx case individually. Kenneth Frazier, Merck’s executive vice president and former general counsel, said that strategy paved the way for the settlement as the company won 11 and lost five of the Vioxx lawsuits that have already gone to verdict.

Those cases would be excluded from the deal, Merck General Counsel Bruce Kuhlik says, as lawyers for the company and plaintiffs pursue legal challenges and appeals.

Additionally, Merck said it would continue its legal fight against roughly 10,000 Vioxx claims that don’t involve a heart attack or stroke. The New Jersey-based drug manufacturer said it would also continue to litigate approximately 300 cases involving 800 plaintiff groups filed in other countries.

Merck still faces other Vioxx-related lawsuits and state and federal government investigations. The company said it would continue to defend itself and maintain cooperation with government investigators.

Despite the continuing investigations, Miller Tabak health care strategist Les Funtleyder says the proposed settlement “removes an overhang, probably the overhang, for Merck.”

“The core business was doing very well. The only thing that was really getting in their way was Vioxx,” says Funtleyder. “If the settlement stands.I think you’ll see a removal of uncertainty, and investors who were gun shy will take a fresh look at Merck.”


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